Reformed Out? 

Obama's health care reform is forcing a local insurer out of business, some say, leaving its customers in a lurch.

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A struggling Richmond company that is going out of business with millions of dollars in debt has become a national poster child in the battle over President Barack Obama's health care reform law.

The plight of health insurer nHealth has gained notoriety in media outlets ranging from health insurance trade newsletters and Politico.com to conservative outlets such as Fox News, ”The Rush Limbaugh Show” and The Washington Times.

Paul Kitchen, the company's chief executive, has told other media outlets that he plans to end company operations by the end of the year because the new health care law that Obama signed March 23 has technical financial requirements that make nHealth's business plan unworkable. Kitchen did not respond to several calls for comment. No one answered the door at the company's headquarters in a Henrico County office park last week.

The company's demise raises big questions. Is the company going out of business because it could not make a profit and was more than $10 million in debt after being in business for two years? Was it a threatening upstart snuffed out by big-time corporate medical insurers? Or was it the inadvertent victim of an ill-thought-out regulation in the health care bill now being used as a whip by the right wing to drum up support for fall congressional elections?

The answer might well be all three.

The company opened in 2008 with the marketing slogan "Invest in Your Health."  Its idea was to use a combination of high-deductible medical policies, low premiums and health savings accounts to save small businesses money. The high deductibles made it cheaper for small businesses to cover their employees. By using savings accounts managed by workers, an option favored by conservatives, individuals would be able to save money by making their own decisions on health care.

The start-up faces considerable competition. Richmond's small business insurance market is dominated by four big players — Anthem, Optima, Southern Health and United Health Care, according to Alan Slabaugh, an insurance broker with Business Solutions.

Yet some of nHealth's more than 100 clients say they were happy with its service and delighted with its prices. Neil Gilliss, a partner at Johnson and Gilliss Wealth Management Group, says that by switching to nHealth, the company's annual premiums for its seven workers went from $60,000 to $30,000. “We liked how the health savings accounts worked and we recommended nHealth to 10 of our own business clients,” he says.

Another satisfied customer is Steve Gillespie, president of Acorn Sign Graphics, which has 35 employees. Gillespie had been paying about $80,000 a year for medical coverage a few years ago, but now faces big increases — to as much as $145,000 — from larger insurers such as Southern Health.

By switching to nHealth, Gillespie says he was able to keep his premiums at about $90,000 a year. According to the plan, he covered hospital fees, had a $1,500 deductible for employees for doctors' fees and had health savings accounts to help pay for extraneous expenses. “It worked out,” he says. “I don't want to pay my people and then take it away with high medical expenses.”

NHealth seemed on a roll, at least at first. In October 2008, it was named one of the 10 Greater Richmond Companies to Watch by the Venture Forum, a company that promotes start-ups. The good news, however, shielded a problem. NHealth was losing money, including $5.6 million in 2008, $4 million in 2009 and nearly $1 million in this year's first quarter. Even so, its enrollment grew to 1,488.

What seems to have done the insurance company in was a clause in the new health care reform law. According to a “medical loss ratio,” small company medical insurers must ensure that at least 80 percent of their premiums go to medical costs with the remainder going for other functions such as marketing and administration. Because of the way nHealth uses high deductibles and savings accounts, the company's ratio for administrative costs was more like 33 percent.

Conservative bloggers, commentators and politicians quickly seized upon the plight of nHealth and the 80-20 rule to show that so-called Obamacare would actually be more expensive and bureaucratic although it was intended to be the opposite. In a recent broadcast, Rush Limbaugh cited the “small insurance companies” that the new law was forcing out of business.

Other than nHealth, finding evidence of such companies going out of business is elusive. Robert Zirkelbach, a spokesman for America's Health Insurance Plans, a national advocacy and trade group in Washington, says he hasn't heard of other companies forced to close for reasons similar to those that allegedly doomed nHealth. However, he says that the 80-20 rule is expected to  “cause significant disruption for individual policy holders” such as small businesses.

Meanwhile, others are struggling to replace nHealth. “I'm back to the $145,000 quotes,” Gillespie says. “You can say whatever you want about the Democrats or the Republicans, but this new bill is going to dramatically push up the costs of health care. That's undebatable.”

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